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Free Minds & Free Markets

Trump's Tariffs Are Endangering Market Reforms in China

Chinese entrepreneurs worry that the trade war will "put them in the Communist Party's crosshairs," and make further market reforms politically difficult.

Kyodo/NewscomKyodo/NewscomPresident Donald Trump's decision to escalate his trade war with another round of tariffs could put economic and political pressure on private sector businesses in China—but not the kind the president is hoping to apply.

Rather than causing Chinese companies to pack up and move to the United States to avoid tariffs, the trade war with China is likely to make life more difficult for private sector firms in China, boost state-owned businesses, and slow or even reverse market-based reforms that China has been working to implement in recent years.

Chinese entrepreneurs worry that the trade war will "put them in the Communist Party's crosshairs," according to the Financial Times. The Times reports that China's top trade negotiator, Liu He, has been working to reform the country's economy in ways that give private businesses greater access to banking and reduce state-controlled firms' structural advantages. The escalating trade war will make it "politically difficult" for Liu to continue working on that agenda.

American trade policy shouldn't necessarily be dictated by what's happening in China, of course, but the growth of private sector businesses and general liberalization of the Chinese economy is beneficial for the United States and the world economy—to say nothing of how liberalization has helped lift millions of Chinese citizens out of poverty. Trump's trade war is jeopardizing not only the relationship between the world's two largest economies, it threatens to undo decades of fragile progress in getting China to turn away from communism.

What's happening in China is not all that different from what's happened in the U.S. since the enactment of tariffs on steel and aluminum. Businesses with strong political connections have been able to direct the U.S. Commerce Department's opaque, bureaucratic waiver process in a way that suffocates competitors.

What does the United States stand to gain from this shift? Trump and his advisors seem to believe that tariffs on Chinese imports will force more products currently manufactured in China to be made in America. Trump has tweeted that he feels no pressure to make a deal with China because tariffs will mean "making products at home," and he's specifically called for iPhones and a Chinese-made Ford automobile to be producted in the United States.

Those things aren't going to happen. Global supply chains mean that it's almost impossible for the iPhone to be made entirely in the United States—and it would be prohibitively expensive to do so. Ford says it will not be relocating production of the Focus Active to America, despite presidential tweets indicating otherwise. Instead, Ford will simpy cancel plans to offer the car for sale in the U.S. and then continue to make it in China.

Don't expect other Chinese firms to behave any differently. Only six percent of the members of the American Chamber of Commerce in China, a trade association representing Chinese companies that do business in the United States, say this current US-China trade dispute would make them consider relocating operations.

More than half the chamber's members have reported an increase in non-tariff trade barriers as well, says chairman William Zarit, such as increased inspections and slower customs clearance, as Beijing makes life more difficult for private firms doing business with the United States.

"Contrary to views in Washington, China can—and will—dig its heels in and we are not optimistic about the prospect for a resolution in the short term," says Zarit. "No one will emerge victorious from this counter-productive cycle."

Photo Credit: Kyodo/Newscom

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  • Tony||

    None of this matters as long as Trump does the bidding of the evangelical constituency and forces women to give birth against their will while denying them access to any means of preventing pregnancy.

    --The freedom people

  • sarcasmic||

    It amazes me that people actually think RvW is going to be overturned. It's not. As far as contraception goes, not forcing it to be covered by insurance is not the same as denial of access. All that means is that people have to, OMG, pay for it.

    Clean yourself up off the floor and get it together. Nobody is taking away your precious right to kill the unborn. It isn't going anywhere.

  • Tony||

    I think you need to pay better attention to who is actually running things in the Republican party that now controls most of the governments of the United States. It's obviously not the free market wing.

  • sarcasmic||

    It is pretty sad that the party that traditionally gives lip service to free markets is now just as hostile to them as the party that is openly hostile towards them.

  • Scarecrow Repair & Chippering||

    What the heck does free market have to do with getting illegal abortions? Sheesh, Tony, at least stay on topic.

  • Brendan||

    You might want to have a long look in the mirror and ask yourself why the Republican party now controls the governments of most states.

  • Michael S. Langston||

    Trump != Republican party, in fact several high ranking Republicans basically campaigned against him.

    Irregardless of that fact though, Trump has likely used family planning services in the past, not to mention him whoring around with porn stars.

    Given that's who he's been for 40+ years, it's asinine to think Trump would want to outlaw abortion even if Roe fell.

    Damn you're an idiot.

  • Last of the Shitlords||

    And if Roe falls, it should be at least partially on 10th amendment issues. So the federal government has no more business banning abortion than it does making it available. At least at the earliest gestational stages.

  • Scarecrow Repair & Chippering||

    Yes. There were plenty of abortions available before Roe v Wade, and public opinion has shifted even more in its favor. Travel is cheaper and the internet makes finding abortion mills much easier. The RFK Foundation just announced they will be bailing out every single woman in NYC soon; if Roe v Wade is repealed and states start banning abortion, some SJW will jump in that same day to finance the travel.

    It's just grandstanding to ignore this reality.

  • Last of the Shitlords||

    "The RFK Foundation just announced they will be bailing out every single woman in NYC soon"

    What a relief. Since all those religious fundamentalists who run NYC we're going to run out and ban all abortion at the earliest opportunity.

    Christ the left is so fucking stupid and shrill.

  • ||

    It amazes me that people actually think RvW is going to be overturned. It's not.

    It's amazing to me that people still think it is and always will be as relevant as it was. It's like worrying that Brown v. Board of Education will be overturned when schools are presently more segregated than they were then. The sad part is their absolute failure to recognize their own accomplishments and the actual progress in this regard. Women have more social power and birth control options than they did then and no amount of law could possibly undo it. Which was the whole point of advocacy behind the decision. It's the pervasive progressive thought-terminating mentality where too much is never enough.

  • Michael S. Langston||

    Agreed Roe was awful reasoning, but it's not going to be overturned anytime soon. Those claiming it will be are only politicians who are trying to divide the electorate into two groups: those who agree and vote for said idiot and those who are enemies.

    It's similar to Republicans arguing Ders would gut the military...as if they could.

    But one thing about emotionalky divisive debates, the politicians win as a house divided against it self cannot stand.

  • Last of the Shitlords||

    For once I agree with Sarcasmic. It would take just the right case to even open the possibility of overturning RvW. Even then, completely overturning the originals,Edison is doubtful. Worst case scenario it falls to the states. Since abortion is currently legal by default, it will require action on the part of any state legislature to do otherwise. I somehow doubt most states will ban it outright, and most will leave it alone.

    Put simply, once again Tony spouts moronic nonsense.

  • Brendan||

    I like how the possibility of a few states maybe banning abortion, and a few more no longer publicly funding them means that women will be forced to give birth against their will.

    Assuming they live in one of the few states that might ban abortion outright, there will always be the option to go to another state, or Canada. This, BTW, is an option denied gun owners who wish to avoid their own state's infringing laws - a CA, NY, etc. resident can't go to NH and legally buy a gun, but a resident of a state like MS (more likely to ban abortion if RvW goes away) can always go anywhere else and get an abortion.

  • Fancylad||

    or Canada
    Not if we can help it. We don't need any more baby killing aficionados, thank you very much.

  • buybuydandavis||

    There is also the option of getting laws passed for the things you want, instead of relying on the Nazgul to enforce your wishes

  • Ben_||

    Predictions of the future are worthless. You don't know the future. It will either work out good or bad, you don't know which.

    Complaining about how Trump's plans might not work out -- does that count against Reason's quota of Trump complaints for the week? Rather than complaining about stuff that didn't happen in the past or the future, why don't you complain about events and outcomes that have actually occurred?

  • ||

    Rather than complaining about stuff that didn't happen in the past or the future, why don't you complain about events and outcomes that have actually occurred?

    You mean like "Only six percent of the members of the American Chamber of Commerce in China, a trade association representing Chinese companies that do business in the United States, say this current US-China trade dispute would make them consider relocating operations?"

  • Ben_||

    That is, indeed, an opinion poll. Not an event or anything that actually happened.

  • ||

    So, they shouldn't report on businesses not relocating out of China like Trump said they would, since that's a "non-event"?

  • Ben_||

    Let's have a new complaint every day about the same thing not happening.

    "Straw men and bogeymen didn't attack our village again today. Undoubtedly they are biding their time, training up their paper tigers for an all out doomsday assault."

  • ||

    But, you get that Trump's tariffs are a thing that's actually happening, right?

  • Ben_||

    The newest one is scheduled to go into effect on Sept 24, which is still in the future. Some of them happened in the past.

    Also there's a new understanding with Mexico, which was agreed in the past, and talks with Europe and Canada are ongoing.

  • BYODB||

    Hmm...yes. The Chinese have free speech, of course, thus they can most definitely speak out in China about their honest desires and motivations.

    Nevermind that those who do that tend to end up under house arrest or, you know, vanish.

  • ||

    Sure - they could very easily be lying in order to not suffer the wrath of the People's Government. I still don't think it's just a non-story that Trump's tariffs-intended-to-bring manufacturing-jobs-back-to-the-US aren't doing so, and aren't going to.

  • BYODB||

    We can agree that economically speaking it's an assumption with more reasoning than the alternative. However, given that China is an actual communist nation the idea that there are any non-government run businesses is a matter of optics rather than reality.

  • JoeBlow123||

    "However, given that China is an actual communist nation the idea that there are any non-government run businesses is a matter of optics rather than reality."

    TRUTH.

    Clown car Eric Boehm is too much of a dishonest ignormamous to even bring up this point in his article. I am not sure why any Westerner should give a single shot about the Communist Chinese Chamber of Commerce, this is not even disguised propaganda, it is blatant CCP talking points.

  • Michael S. Langston||

    First I agree tariffs are likely to restart manufacturing in the US as many factories closed because 2nd generation union employees exploited every perk, such as having 3 sick days a month and even if not sick, just taking the last three days off.

    It seems Trump has vastly overestimated what the US labor market is willing to do versus what businesses expect.

    But until the tariff is in place Trump hasn't yet been proven wrong.

    OTOH - if Trump's goal had more to do with pressuring China on currency manipulation, IP theft, etc, etc, then for the administration, whether this has the effect of adding more manufacturing jobs in the US is of no consequence.

    Disclaimer: not saying it's a good idea for any administration to use tariffs as a tool to enhance negotiation position, but not sure I would believe what Trump said is in fact the real reason.

  • ||

    Predictions of the future are worthless.

    Unless you're virtue signalling: "Communist Dictatorship Likely to Get More Communist as Trade War Heats Up, Trump to Blame." - Reason

  • vek||

    It's not going to be Chinese firms relocating... It's going to be the US based businesses that contract manufacturing to them choosing different contractors. Most companies nowadays don't own their own plants, so it's easy to just say "Well, let's find a company in the USA/India/Etc to make our widget to avoid these tariffs."

    But that's still not the goal Trump really has in mind IMO. He really is pushing for China to straighten up and drop barriers IMO.

    As far as things go, the Chinese do not have a choice. If he slapped 100% tariffs on every product coming in from China, their stock market would crash, 10s of millions of people would be laid off, they'd be in an instant depression, and they'd have riots in the street... So between THAT option and just lowering trade barriers, which do you think it makes sense to take? They have to have us as a place to export to, we don't need them to get cheap goods.

  • vek||

    In short, they're a paper tiger. THEY know it, and any sane person knows it, but the international press and of course their propaganda department try to push the idea that we can't topple them in an instant. It's pure BS. We have the upper hand. Period.

  • Michael S. Langston||

    As Ben stated, Reason and ChemJeff share the same delusional logic, where one can define a hypothetical future then accurately predict relevant entities actions, then act like anyone who disagrees are ignoring the obvious facts.

    Not to mention predictions about the future have one universal commonality: they're ALL wrong.

    History is replete with examples of those who should be in the best position to predict failing miserably. Such as Bill Gates saying in the 80s he sees know reason anyone would ever put a computer in their home.

    And lastly, China has been agreeing to be more market centered with things like artificially propping up exchange rates, for 40 years at least.

    So while they may be serious this time, history would say it's unlikely anything was going to change unless something in China's calculus changes and it's unlikely they'll change without outside pressure (given we've tried the 'Don't pressure them route' route for years).

  • Last of the Shitlords||

    If anything, they are an increasing threat over time. If something hurts their economy, then good.

  • JoeBlow123||

    China is the master of bait and switch. About the only thing I am happy Trump is doing is sticking it to the CCP.

  • bit15||

    I don't think Bill Gates ever said that.

  • BYODB||

    Didn't you guys just publish a story yesterday about a Foxconn plant moving to Wisconsin?

  • Ken Shultz||

    "Rather than causing Chinese companies to pack up and move to the United States to avoid tariffs, the trade war with China is likely to make life more difficult for private sector firms in China, boost state-owned businesses, and slow or even reverse market-based reforms that China has been working to implement in recent years."

    I care about Chinese people in the Chinese economy as much as the next guy, which means less than I do about myself and my own economy.

    If you want to persuade people in the United States to oppose trade barriers, make the case for free trade in terms of what's best for people in the United States.

    For some people, that's an incredibly difficult thing to do.

    I've made fun of Objectivists and Ayn Rand fanatics for years, but maybe we need to graduate from that before we dismiss it all out of hand. Some people have a hard time imagining arguments about pursing their own best interests--because they think it comes across as selfish, I guess? I don't know.

    Regardless, no one who isn't already on board with free trade is about to jump on bandwagon because Trump's trade policies make things worse for the Chinese--especially when Trump is telling us that his trade restrictions are good for the U.S. Tell them that Trump's policies are bad for American consumers, and you might get their attention.

    Anybody who wants American policy to take the best interests of the Chinese into account, should maybe go run for office in China.

  • Michael S. Langston||

    If you want to persuade people in the United States to oppose trade barriers, make the case for free trade in terms of what's best for people in the United States.

    Not only is this a good idea in all areas of persuasion, those who believe that others can be talked into sacrificing themselves for people in another country, are people who truly feel we should be helping others even if it doesn't help us.

    But they're lying to themselves - humans, all humans, operate on incentives, not altruistic beliefs.

    On the plus side though the author and their friends get to tell themselves how much better they are than others because they really look out for others, when in fact they are heavily invented to do so through things like groupthink, social pressures, etc, etc.

    Especially when a broad segment of the population boils down all arguments today with "You either agree with us, or you're an extremist". Extremists get isolated and man is a social animal, who doesn't want to be isolated (normally, some people prefer solititude, but they still socialize).

    IE - if your friends, colleagues, mentors/educators, all agree that Trump is the most dangerous thing ever and the only people who disagree and Nazi birthers....that's a lot of pressure, pressure many cannot overcome (for writers working at Reason the percentage is much higher than it would be in a random sample).

  • vek||

    Yup. The writers at Reason have all caved because they buy into the leftist social pressure, which is all artificially created through the media itself! Half + of the country is conservative to varying degrees, but by just looking around at the media, big companies nowadays, etc one would think it's some fringe 10% minority. But by caving to their every demand, and then turning around and pushing the lefts own propaganda they're doing themselves and everybody else a great disservice.

    I don't give a fuck about people in China. Not when it comes at the expense of my nation. I wish them the best of luck, but not if I have to slit my own throat to do it. If they weren't a communist dictatorship I'd probably be a little more sympathetic too, but they are.

  • buybuydandavis||

    #ForeignersFirst

  • Homple||

    Yes, a communist regime was just about to reform its markets when that mean old Trump made them stop.

  • Last of the Shitlords||

    He's such a big meanie to that nice old Mr. Xi.

  • Sevo||

    Tariffs are bad, everywhere and always, but predictions of their effects on a 'state-managed' economy is not going to sway even those who are wavering.
    Get better, or shut up

  • moschinoonline||

    Ignore record employment, record low unemployment, record wages, record stock market,

    All stats with gains that improved most before 2017.

    I like how UE came down from 10% plus to 4% under Obama but Trump tries to take credit for record low UE today.

    Or that 4.1% GDP number that would have been only fifth best with Obama.

    Wingnuts know how to lie - I give them that.

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  • buybuydandavis||

    "Communism in China is all Drumpf's Fault!"

  • cheapmcmbelt||

    I agree!!! You can discuss with other side. That's how you learn and expand your view points.

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  • moschinoonline||

    In an interview with Chinese state media, Jack Ma said last year's promise to expand Alibaba's reach into the United States was based on "friendly China-U.S. cooperation, and the rational and objective premise of bilateral trade."

    Yeah, uh huh. I mean, he might be telling the truth. That's always possible. It's also possible if he didn't say that he'd get a bullet or sent out to the rice fields.

    This whole 'trade war' is really revealing a lot of interesting views about how journalists view China. China is a trade partner (a bad one, specifically), but they are not our friend for sure.

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